CBN proposes Nigeria’s first mortgage guarantee firm

The Central Bank of Nigeria (CBN) is proposing the establishment of Nigeria’s first mortgage guarantee company as part of efforts towards reviving the mortgage sub-sector and repositioning housing financing institutions in the face of current demands and challenges.

The new move being piloted by the CBN, after its circular for the regulation of the operations of the Mortgage Guarantee Companies (MGC) late last year is expected to further deepen the mortgage market through increased access to mortgage finance and sharing of credit risk with mortgage lending institutions.

Specifically, MGC is to support mortgage originators such as Primary Mortgage Banks (PMBs) and commercial banks to increase mortgage lending by guaranteeing or partially guaranteeing against losses resulting from borrower defaults on their residential mortgages.

MGC will also facilitate increased access to housing finance by reducing or replacing the requirement for equity contribution that would otherwise disqualify mortgagors from accessing mortgages as required by the uniform underwriting standards.

Under the financial requirements, a prospective company seeking license would have a minimum paid-up capital N10 billion, non-refundable application N100,000, non-refundable licensing fee N1 million and change of name fee N50,000.

It was gathered that the stringent measures for the establishment for the MGCs and the COVID-19 pandemic impacted on the MGC scheme, as seven months after no single application was received.

CBN is taking the bull by the horn and has decided to float the Nigeria Mortgage Guarantee Company (NMGC), which will be licensed under the newly issued guidelines.

The NMGC is expected to be the forerunner for the scheme in the country.

In the proposed company, CBN will help capitalize NMGC with N7.5 billion and offload after five to eight years. Nigeria Mortgage Refinancing Company (NMRC) is coming into the deal as the anchor institution, which is willing to provide N2.5billion out of N10billion required minimum equity capital.

NMGC will invest in government securities; assume ownership of a foreclosed residential property if a lender is unable to dispose of it; provided that such holding will not exceed 20 per cent of its shareholders’ fund unimpaired by losses without the Bank’s prior written approval.

The mortgage guarantee firm will also issue bonds and notes to fund its operations; provide technical assistance to lenders on credit and business development related activities to increase industry expertise.

CBN Deputy Director, Adedeji Adesemoye, who confirmed the development to The Guardian, said: “It’s not the licensing condition that is stringent but mortgage guarantee company is not business of commoners. It’s a specialised financial institution. The private equity market is seriously affected by the current economic outlook.”

Adesemoye, who doubles as a Director in Federal Mortgage Bank of Nigeria (FMBN), disclosed that the National Pension Commission (PENCOM) is willing to partner in the use of NMGC services to release some proxy securities for holders of Retirement Savings Account (RSA); to utilise 25 per cent of their pension savings as equity deposit to own their home under a sustainable mortgage loan agreement. (The Guardian/VON)